Sustainability in Family Business Transitions

If sustainability in family business transitions means that a company passes to the next generation, and the company continues to do well, then the odds are not great.

It’s an unpleasant reminder, yet the most commonly quoted business transition statics are:

Approximately 75% of all businesses fail to survive past the first generation of owners.
More than 85% fail by the third generation.
More than 95% fail beyond that.

We believe that there are almost as many causes for this dismal record as there are families and understand that external factors come into play as well, such as new competitors, changing regulations, evolving technology, or economic downturns. Today, however, let’s focus on two internal factors that you may not have considered.

Uncomfortable owners
Uncomfortable successors

A Too-Common Story

It’s sad to hear owners make statements like “My son’s been working in my business for 10 years and, frankly, I don’t trust him to run the place. He’s just not ready.”

Our initial—but always unspoken — reaction is, “Well, Dad, shame on you.”

If that seems harsh (and it is), consider that this father has had 10 years to prepare his son for ownership. He’s had:

10 years to become the mentor and guide that his son needed to learn how this father does what he does.
10 years to go beyond teaching his son about the facts and processes of the business to explain how he reasons and makes decisions.
10 years to communicate to his son how important it is that the business continue to succeed, and how he wants customers, vendors and employees to be treated.

This owner had 10 years to create and execute a transition strategy that could accomplish all of this, yet he hadn’t done so — possibly because the transition of his business makes him uncomfortable.

Discomfort is a Very Good Thing.

In The Comfort Crisis: Embrace Discomfort To Reclaim Your Wild, Happy, Healthy Self, author Michael Easter makes a persuasive argument that it is discomfort and challenge — not comfort and constancy — that improve health and happiness. We’d say the same about family business transitions: sustainable family business transitions grow best in the fertile soil of discomfort and challenge.

Uncomfortable Owners

Owners like the one in our example are clearly uncomfortable and, too often, assume that their discomfort is somehow their successor’s fault. That may be partially the case and we encourage these owners to take a closer look at themselves.

In our experience, we find that most owners have varying levels of (1) justifiable pride and satisfaction in their past accomplishments and in what they’ve built and, (2) doubt about where they’ll be and what they’ll be doing in 10 years, especially if they’re in their late 50s or early 60s.

This idea of looking ahead 10 years is one of the disciplines that Gino Wickman and Rob Dube describe in their book, Shine: 10 Disciplines for Maximizing Your Energy, Impact, and Inner Peace. These authors recommend that entrepreneurs adopt a 10-year time frame in their thinking, decisions, and actions. As Transition Strategists we agree with these authors because we know that the more time owners give themselves (10 years, for example) to execute their business transitions, the better are the odds of success.

Wondering what our lives and companies will look like in 10 years and about how we will get from where we are today to where we want to be then is, frankly, uncomfortable. Yet it’s that discomfort that prompts many owners to “do something” about the future transition of their businesses. We’ll discuss what that “something” might be after we look at the causes and effects of successor discomfort.

Uncomfortable Successors

As an exercise, we often ask owners to squeeze their feet (figuratively) into their son’s or daughter’s shoes. We ask them to imagine what it feels like:

To confront an enormous and steep learning curve.
To know that their success or failure in mastering that curve materially affects their parents and, possibly, siblings and other family members.
To want to match their parent’s success.
To suddenly have employees and their families depend on them for their livelihoods.

That’s a lot of pressure.

And yet, it’s often that pressure that prompts successors to ask their parents to “do something!”

So, Let’s Do Something!

At some level, owners and successors understand that the transition of a family business is a once-in-a-lifetime opportunity to work together to create something amazing. It’s just that they don’t know how to grab that opportunity. We just happen to have a few suggestions for both owners and successors.

Owners and successors: Take time to reflect on the personal and business-related reasons why a successful transition is important to you.

Owners: In addition to thinking about why you want a successful transition, give some thought to your possible answers to five other essential questions:

What assets to you have to transition?

Who is your successor and how will that choice affect others?

When will you, your successor and your business be ready to transition?

How much do you, your business and your successor need from the transition?

How will you design the transition in terms of a sale or gift taking into consideration optimizing your tax strategy,

Taken together, we call these questions The Big Six™, and they constitute the six points on The Transition Compass™ that keeps you on track to a successful transition.

Owners and successors: Identify the areas of transformation that could present the greatest challenges for you.

Whether you are an owner or successor, you can take these steps on your own or take them with us and your peers in a few ways: attending our three day Transition Roadmap Master Class, our Big 6 Program, or our 90-minute workshop, Metamorphosis. No matter what, these steps create an outline of a blueprint that you can use to plan and invite others into your transition.